Is Residential Demand Response Hot? Or Is It Just Hot Outside?

ClearlyEnergy surveyed the direct load control programs across the US. In exchange for allowing the power company to turn down or off a residential air conditioner during peak load times, these programs offer rebates and other financial incentives. The programs come with creative names such as Summer Saver, Peak Rewards, EnergyWise, CoolCustomer, Saver’s Switch or Degrees of Difference and pay anywhere from $20 - $200/year depending on the utility.

Peak Load and Peak Prices

Electricity tends to cost more in the summertime – in fact during the current heat wave across the Eastern US, PJM day-ahead prices are topping over $300/MWh when they typically shouldn’t cross the $50 mark. Power demand across most of the US is highest when it’s hot, due to all the cooling devices that run on electricity and these periods of “peak load” cause power companies all kinds of headaches.

To meet this load, power companies have to fire up every power plant they have, which is both expensive and often bad for the environment since peaking power plants – peakers ­ - are typically the least efficient of generating assets. Because the power supply cost curve has the shape of a hockey stick, firing those rarely used units brings on exponentially higher costs. Those costs get passed on to consumers in the form of higher electric bills.

Thus, power companies are eager to cut peak demand: so eager that they will pay consumers to use less power during critical times in order to make sure electricity demand does not exceed supply. These demand response programs are most often focused on industrial and commercial customers, but increasingly, are also targeted at residential consumers. Since residential users have the “peakiest” of load shapes, i.e. the ratio of peak to base demand is higher than for all other rate classes, it makes sense to also target that group in contributing to peak load reduction.

Program Design

The reward in direct load control programs is usually a one-time credit just for signing up, plus various additional rebate styles. Most programs are structured as a flat monthly fee for the summer months or annual credit paid at the end of the summer. That credit often increases if water heaters, pool pumps or hot tubs are added to the list of appliances, which can be controlled by the power company (Florida Power & LightOnCall program gives you credit for all). A few programs such as Georgia Power’s, pay per activation, and some such as Duke Energy’sPower Manager even pay out as a direct function of the power price at the time of the cycling event. Xcel’s program is structured as a discount to the summer’s electric bills.

Newer programs rely on programmable thermostats coupled to smart meters instead of switches installed on the air conditioner or water-heating unit. In implementations such as Nevada Energy’sMPowered program, the power company doesn’t cycle the air conditioner, but instead raises the thermostat temperature by a few degrees (up to 4 degrees in NV Energy’s case) to achieve a comparable result. Baltimore Gas & Electric’s new Smart Energy Rewards takes the idea one step further by paying $1.25 per kwh saved during those critical days. Thermostat driven programs, such as Reliant’s Degrees of Difference in partnership with Nest, often include new fancy thermostats that can be monitored and reset online. This allows the user or the power company to manage a home’s power consumption.

Direct load control may sound great to daytime office dwellers, and most programs cannot be activated on weekends, but for those at home at mid-day, having the power company cycle the air conditioning on a hot day is not be the most appealing idea. Many programs account for this by offering different degrees of intervention – Pepco’sEnergy Wise Rewards program in the Maryland and DC area, Duke Energy’s or San Diego Gas & Electric’s programs have the biggest rebate for those willing to cycle their a/c at 100% when necessary, but offers 75% and 50% cycling options for those who can take some slightly warmer home temperatures in exchange for a (smaller) rebate. Other programs such as Dominion Virginia’sSmart Cooling Program offer the option opt-out of a cycling event a couple times per summer.

So no matter how hot it gets, residential consumers may be able to save some real money and help the environment by participating in direct load control…a summary of the survey of programs can be found here.

My name is Véronique Bugnion, I'm the co-founder of ClearlyEnergy, energy portal designed to simplify energy decisions for households and small businesses. Searching for electricity and natural gas suppliers? appliances? solar? or simply don't how to go about saving on energy? our aim is to simplify energy decisions by providing transparent information on the choices and costs involved. I ...